Boston College, Carroll School of Management

An Intro into Blockchain Technology and Bitcoin

For this blog post, I decided to write about blockchain technology. This is a term that has already been tossed around a little in class and twitter, and with the hype-around bitcoin and other current news, I am sure it will continued to be used. I personally did not know a thing about what blockchain was before this post, so I figured there may be some other classmates in my same position. For those students, I hope this post is just as enriching for you to read as it was for me to create. Here is my blockchain 101:

What is a blockchain?

“Blockchain: a distributed database that maintains a continuously growing list of ordered records, called ‘blocks’.” – Vinay Gupta in A Brief History of Blockchain

Blockchains store information across a network of personal computers, making them not just decentralized, but distributed. This means there is no central company or person who owns the system, rather everyone can use it and help run it. It is very difficult for one person to take down the network or corrupt it because no centralized version of this information exists. Put simply, blockchains offer a very high form of data security. How does it work you ask? Users of the system hold bundles of records submitted by others called blocks that are linked together in chronological order as a chain. This blockchain uses a form of math called cryptography to ensure that records cannot be counterfeited or changed by anyone else. Each blockchain is hosted by millions of computers simultaneously and it’s data is accessible to anyone on the internet.

So who invented it?

The invention of blockhain coincides with the invention of bitcoin. Satoshi Nakamoto is the pseudonym for the unknown person or people who designed bitcoin. As part of the implementation, he/her/they also devised the first blockchain database.

Bitcoin!

I could not write about blockchain technology without including its main use: bitcoin. Bitcoin is a virtual money that you can use to buy and sell things online. It is a cryptocurrency meaning it is encrypted in a way that prevents it from being copied. It mimics real world limited resources like gold, because there is a finite supply. Developers estimate there are 21 million bitcoin available, with about 16 million currently in existence and 5 million more to mine.

Where does blockchain come in?

Every bitcoin transaction is recorded using a blockchain. Through this system, all the information surrounding a specific bitcoin is complied into a ledger (the blockchain) that is encoded onto the bitcoin itself. This prevents people from spending the same bitcoin more than once since everyone else on the network knows it was spent. While a regular dollar bill can be counterfeited by making a copy, with bitcoin, their is no way to counterfeit. It is possible, however, to mine more. Just like gold, the more people mine bitcoin, the less there are to be found which makes them increasingly harder to find. Mining bitcoins involves solving very high level math problems with powerful computers. To put it in perspective, it is estimated the remaining 5 million bitcoin won’t be fully mined until 2040. In order to maintain a steady flow, the difficulty of these math problems increases as the amount of miners increase. Through this system, the value of bitcoin is value is boosted and they remain inflation proof.

What are the cons?

Because there is not a central organization regulating bitcoin, its value tends to fluctuate wildly. For example, on December 19th, 2012 a single bitcoin was worth $3.41 where as on January 17th, 2018 bitcoin was recorded at $18,387. There is also the security risk of security of hackers who target the banks and exchanges that deal in bitcoins. Just as you wouldn’t blame the dollar bill if a bank was robbed, this is not the fault of the cryptocurrency. Additionally, new research from Chainalysis estimates that 17% to 23% of existing bitcoins, have been lost due to mismanagement.

The future of blockchain technology?

Bitcoin is just the beginning for blockchains. As the full potential of these breakthroughs hits society, life for individuals and businesses will undergo change. According to the Institute for the Future and an article from Harvard Business Review, in the future blockchains that manage and verify online data could enable us to launch companies that are entirely run by algorithms. This could make self driving cars safer, help us protect are online identities, and even track the billions of devices on the internet of things. Self-driving cars and drones may be able to leverage blockchains to pay for services like charging stations and landing pads. It is even possible that international currency transfers will go from taking days to an hour, and then to a few minutes, with a higher degree of reliability than the current system has been able to manage.

The possibilities are vast and exciting, and I’m looking forward to see how these topics come up in class, our readings, and our Spring trip out West! Thanks for reading, happy blogging 🙂

11 thoughts on “An Intro into Blockchain Technology and Bitcoin”

As someone only vaguely familiar with blockchain and bitcoin, I really appreciate you going so in-depth on both of them. I definitely understand more about their value and applications now, and I could not agree more that they will substantially change our society over time.

My only present concern is what appears to be a financial bubble emerging around bitcoin. Given the extreme volatility that you mentioned, many less-informed individuals are investing in it with the hope of riding a high. This approach is problematic in the long run, however, and more regulation may need to be introduced in preventing anything disastrous. I guess we’ll see!

Hey Lizzy, great topic! I feel like bitcoin and blockchain technology have recently become tech buzzwords (a bit like big data), but many people, myself included, don’t fully understand the concepts. This was a great overview of the technology, but it definitely brings about some early concerns. While our stock market has slight fluctuations, bitcoin seems like a very high risk asset with such volatile value. Additionally I’m interested to see how consumer protection develops, because currently no transactions are anonymous or reversible.

Thanks so much for the quick bitcoin lesson – I’m interested to see how much further it evolves by the time we go on our trip!

Lizzy! Loved this topic, I have been very interested in Crypto and learning more about them. It seems a little “wild-west” without the regulation of ICO’s by the SEC. I also always find it amazing that people will misplace a password and lose millions of dollars in bitcoin.

The part that I really see interesting in cryptocurrencies is the “smart contracts” that are used in many Ethereum based coins. Having all contracts (from sports gambling to home mortgages) be completed easily could be a big step to making coins more practical. I also am trying to learn more about DAPPS (decentralized apps) and changes in the way servers are organized!

Thank you for providing a clear explanation of such a hot topic in tech! Most resources I have found are either too complex or don’t provide enough information. The best video I have seen is this one: https://www.youtube.com/watch?v=bBC-nXj3Ng4.

With all of the platforms being used to trade crypto (Coinbase, Bitfinex, etc.) I wonder which, if any, will emerge as the main tool used for years to come. What are your thoughts, given the research you have done?

Hi Lizzy! Great blog post. I too have read various articles and videos and still haven’t felt like I fully understood Blockchain. I think this post has enabled me to grasp the concept better! I really enjoyed the images you included as the visual gave me a good sense of what you were talking about, and I could see the path of a transaction. I also honestly didn’t realize how data security is so integral to what makes up blockchain technology and cryptocurrency. I am excited to continue talking about this topic over the course of the semester, especially as the value fluctuates so much!

Great write up of a very complicated and hard to understand subject. I really like the video as well. If you are new to Blockchain, it’s worth watching a couple of times. So much going on in this space. One of the Companies on our schedule, Veem, has been using Blockchain and Bitcoin to do bank transfers for small businesses across the world for the past 4 years. They’ve seen incredible growth. A bunch of ex-Western Union guys using a better system (the ledger) to move money around! Just what the HBS Prof said in his video.

Hi Lizzy, thank you for writing on this subject! I also did not understand bitcoin or blockchain technology before this, but now I have a much better understanding. It is crazy how a cryptocurrency can become so valuable, although volatile. Because of its extreme volatility, I have heard mixed reviews from people about actually accepting it as currency…who knows what it will be valued at by the time it changes possession? Additionally, I was surprised by the percentage of bitcoins that were lost due to mismanagement! It’s very unfamiliar that a currency does not have anybody managing and controlling it like the Federal Reserve.

This is a great crash course, Lizzy! It seems like society’s two biggest concerns with bitcoin now are that it might lend itself to unethical black market payments and there is a threat of hacking, but you addressed both those concerns well The way you described the cryptography involved in blockchain makes it seem very secure and hard to hide unethical behavior. I loved your analogy about how you shouldn’t blame a dollar bill for a bank robbery—the issue is not with cryptocurrency itself, but with the exchanges. I wonder what measures the exchanges will take to ensure that they aren’t hacked.